Chapter 3: The Environment of Marketing Channels

The Environment
consists of all external uncontrollable factors within which marketing channels exist
– affects channel members and facilitating agents (nonmembers) = ALL channel participants
List the 5 environment factors that impact marketing channel
1. Economic
2. Sociocultural
3. Competitive
4. Legal
5. Technological
decrease in consumer and/or corporate spending = decrease in sales volume; decrease in profitability; firms caught with large inventories
Recession Channel Strategy
manufacturers could provide channel member support by financing high inventory costs
continued HIGH spending
decrease in spending, thus fueling a recession
Inflation Channel Strategy
– Reduce manufacturers product mix from higher-price to lower-price products
– Reduce inventory burden on members with:
a. streamlined product line
b. faster ordering processing and delivery
c. higher inventory turnover through stronger promotional support
DECREASE in prices
challenge: pass cost induced price increases through channel when built in cost pressures from labor contracts were negotiated several years earlier
Horizontal Competition
– Competition between firms of the same type.
– Most visible and frequently seen
– “look-alike” competition
– Ex: Lowes vs. Home Depot; Best Buy vs Circuit City
Intertype Competition
– Competition between firms of different types at the same level
– Ex: Kroger vs Fresh Market
– Ex: Amazon vs Barnes and Noble
-Ex: Dundermiflen vs Staples
(buyer-buyer) (buyer-consumer)
Vertical Competition
– Channel members at different levels compete
– Ex: competition between manufacturers of national brands vs private brands (private labels)
– Ex: Safeway’s “O’s Organic Cereal” (retailer) is aimed directly at General Mills’ (Manufacturer) “Cheerios”
Channel Systems Competition
– When the whole channel goes into war with another complete channel
– Ex: paint; tires
– Sherwin Williams controls their entire channel so that they have control over everything from manufacturing to customer service
– In order for channels to compete as complete units, they must be organized, cohesive organizations
Vertical Marketing Systems
– name given to channels that have been classified as complete units that are organized and cohesive
Verticle Marketing Systems are classified into three types:
1. corporate
2. contractual
3. administered
Corporate (vertical marketing system classification)
production and marketing facilities are owned by the same company
Contractual (vertical marketing system classification)
independent channel members (producers or manufacturers, wholesalers, and retailers) are linked by a formal contractual agreement
Administered (vertical marketing system classification)
result from strong domination by one of the channel members, frequently a manufacturer, over the other members
Scrambled Merchandising* (rando book def)
selling of products through nontraditional outlets
– ex: online
Sociocultural Developments
– population age patterns: US pop becoming both younger and older
– Ethnic mix: increase # of minority owned business
– Educational Trends: Increase levels = people are more demanding
– Family/ Household structure: smaller and more varied
– Role of women: Increase # = changing shopping needs
Technological Environment
– EDI: Electronic Data Interchange

Enhanced Distribution Efficiency:
– links together channel information systems
– provides real-time responses
– enhanced by internet

Cloud Computing* (rando book def)
internet based technology that enables bother large and small businesses and organizations to utilize highly sophisticated computer application
Dual Distribution* (book def)
practice whereby a producer or manufacturer uses two or more different channel structures for distributing the same product to his target market.
Full Line Forcing* (book def)
when a supplier requires channel members to carry a broad group of products (full line) in order to sell any particular products in the supplier’s line
Price Discrimination* (book def)
practice whereby a supplier, either directly or indirectly, sells at different prices to the same class of channel members
Price Maintenance* (book def)
supplier’s attempt to control the prices charged by its channel members for the supplier’s products
– supplier in effect dictates the prices charged by channel members to their customers
Free Riders* (book def)
channel members who provide little service themselves and sell at low prices by feeding off the service provided by full-service channel members
Refuse to Deal* (book def)
In general, suppliers may select whomever they want as channel members and refuse to deal with whomever they want
Resale Restrictions* (book def)
when a manufacturer attempts to stimpulate to whom channel members may resell the manufacturer’s products and in what specific geographical market areas they may be sold, they are engaging in: resale restrictions
House Account* (book def)
customers to whom the manufacturer sells directly
Intraband Competition* (book def)
competition between distributors selling the same branded product of a particular manufacturer
Rule of Reason* (book def)
Under this rule, courts weigh in intention of the supplier and the effects of the supplier’s resale restrictions on the market.
If the restrictions were not intended and did not appear to result in a restraint of trade, they were generally allowed to stand
Interband Competition* (book def)
competition between distributors in the sale of branded products of competing manufacturers
Vertical Integration
A firm that owns an operates organizations at other levels of the distribution channel
– practiced by a number of manufacturers such as Goodyear, Firestone, and Sherwin-Williams

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